A Satellite Battle Over the Eastern Skies

By

Chun Han Wong

July 8, 2012 5:08 p.m. ET

For European satellite company SES, the Asian sky's the limit.

Faced with well-developed and largely saturated markets in Europe and North America, global satellite operators are looking east, where they seek fresh impetus for growth in Asia's middle-class consumers and burgeoning enterprises.

Satellite television is a key battleground. Operators say the region's rapid consumption growth will pay rich dividends in the direct-to-home TV segment—some 9,000 channels are expected to air in Asia by 2016, up from 2,000 channels today.

ENLARGE

Deepak Mathur
SES

Résumé

Education: Bachelor's degree from Knox College in Illinois; Master's in international management from the University of Denver.

Career: Director of U.A.E.-based satellite broadcaster YahLive; previously served as managing director at Americom-Asia Pacific, a joint venture between General Electric and Lockheed Martin; regional roles at EchoStar, NagraVision.

Extracurricular: Hiking, playing squash

Already, SES—the world's second-biggest satellite operator by revenue—is leading the charge, carrying the most paid direct-to-home channels in Asia, with nearly 650 channels as of June. The group serves about 20 million direct-to-home pay-TV subscribers in the region, more than any of its peers.

And the company is poised to spend more to shore up its lead here, according to Deepak Mathur, a senior vice president who heads the company's commercial operations in Asia-Pacific and the Middle East.

SES—which now uses five of its 50 satellites to serve Asia-Pacific clients—is set to launch another for the region early next year, Mr. Mathur said. "We're also evaluating the possible acquisition of up to two additional satellites for Asia (for launch after 2014), which would represent a combined investment of about $650 million."

Mr. Mathur spoke to Chun Han Wong in Singapore about the prospects and pitfalls for a global satellite operator seeking to woo Asian consumers. The following interview has been edited.

WSJ: How is Asia shaping up as a satellite services market?

Mr. Mathur: Asia isn't a single monolith—the markets are at various stages of evolution. We have developed markets like Japan, Korea, Singapore, Australia and New Zealand, with different demand structures compared to markets like India, Indonesia and Thailand, which are in their growth phase. Others like Afghanistan, Pakistan, Mongolia and the Pacific islands are still in the early stages.

Growth in Asia-Pacific is mainly driven by direct-to-home satellite-TV subscriptions, helped by growing household incomes and favorable demographics. India makes up a large part of that. Satellite now accounts for 30% of multichannel pay-TV users in India, and that is projected to grow to 50% by 2016. That translates to 70 million more households.

In the early years, about a decade ago, a lot of our contracts were shorter term because the business environment hadn't matured. These days our Asian customers have sufficient need for long-term business continuity—a number of them are going from one- to three-year contracts to five-, 10- or 15-year contracts.

WSJ: What is the competitive environment like in this region?

Mr. Mathur: The competition in Asia is somewhat unique. Globally, the competition tends to be between five and six operators, but in Asia there are also a very large number of national satellite operators—like India's Insat, China Satcom, Japan's SKY Perfect JSAT, Thailand's Thaicom, Indonesia's PT Telkom and Indostar and so on. You could take a head-on approach to competition, but we found that we bring a lot of value when we work with the national operators.

For example, we work very closely with the Indian Space Research Organization, or ISRO, which owns and operates Insat. ISRO has worked hard to try and meet the market's requirements, but it can't as the market is simply too big. We work closely with them to ensure that the market doesn't suffer from a lack of capacity—we acted as a relief valve of sorts—and it's turned out to be a win-win for everyone because the market potential is enormous.

Also, a lot of the Asian satellite operators—except China, Japan and India—have small fleets of two to three satellites. Their investment programs are comparatively constrained, but we have the capacity to add value to their programs.

WSJ: What regulatory issues does SES face when trying to operate in Asia? How does the company, given the long time cycles involved in planning satellite investments, adapt to regulatory and demand changes?

Mr. Mathur: Where we might run into problems in Asia is in the service delivery to consumers. But because we provide infrastructure, we don't typically see those issues. We rely on our customers to take the appropriate regulatory steps, while in many cases we also work closely with national partners.

We're constantly trying to predict what the future looks like. Unlike ground-level infrastructure, the satellite industry has long time cycles—planning and building a satellite can take three to four years, before it spends another 15 years in orbit.

We can build in flexibility of the satellite's coverage in anticipation of a change or evolution in demand. It costs some money and sometimes the bets don't pay off, but some of the satellites we've built have been a huge boon because we've been able to adapt to changes in demand.

WSJ: China remains an unexplored frontier for foreign satellite operators. How do you read the likely evolution of Beijing's regulatory regime?

Mr. Mathur: At the moment, the regulatory environment in China doesn't permit us to provide services directly to Chinese customers, and the direct-to-home platform there is owned and run by the government. Regulations will evolve for different subsets of the telecommunications industry—voice, data, video—at different paces. My sense is that China will first potentially allow enterprise-type applications of satellite services, rather than, say, for media.

In the short-to-medium-term, our expectations are that things won't change in the regulatory framework. For now, we are expecting to continue to support Chinese corporate customers as they branch out overseas. We are actively involved with Chinese companies investing in Africa and South America—the big mining and extraction companies, for example—and we provide infrastructure for internal communications.

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